UT Bank has reported modest results for 2014 but continued to issue loans to SMEs in its efforts to help them weather the unpredictable economic climate.
At the same time, the bank made the bold move to introduce a number of reforms which also contributed significantly to its performance.
Following the release of its 2014 Audited Financial statements, UT Bank published a 24% increase in profit before tax to GHC16.7 million.
The bank demonstrated resilience in the face of a challenging macroeconomic environment which had a particular impact on the SME sector, the bank’s core client base. It successfully grew its interest income by 20%, largely due to increases in loans and advances.
Growth in non-funded income also remained strong, rising by 35% year-on-year on the back of increased trade transactions and an expansion of the forex product offering. On the other hand, the rise in Treasury Bill rates negatively affected the Bank’s cost of funds, causing interest expense to rise by 33% year-on-year, despite an improvement in the funding mix.
The organisational restructuring programme, undertaken in 2014, was a key contributor to the rise in operating expenses. The programme, aimed at better structuring the Bank’s business model for the next stage of growth, involved a redesign of the model into two main categories, namely Corporate Banking and Retail Banking; a re-alignment of job functions to cater to specific economic sub-sectors and niche markets; and a development of specific product offerings aimed at addressing the growing complexity of consumers’ financial needs.
This required the bank to hire additional staff as well as investing even more in training and resourcing.
Exposures to hard hit sectors of the economy, such as the oil, construction and agriculture sectors adversely affected the Bank’s asset quality, and resulted in a rise in non-performing loans. Profit after tax grew 21% year-on-year to GH₵ 11million.
The bank also posted a 31% year-on-year growth in loans and advances to customers, in part due a 15% increase in loans disbursed and partly due to FX translations as a result of the depreciation of the Cedi against the U.S. dollar.
Total assets grew at a slower pace due to a decrease in investment securities as UT Bank exited some medium term investments and disposed of some fixed assets. Total deposits increased by 5% year-on-year following a conscious effort to reduce expensive deposits while growing cheap funds. The ratio of cheap to expensive deposits therefore increased from 31% to 38%.
UT Bank improved its return on average equity, in line with the prior year return on average assets and cost-to-income ratio.
Commenting on the results, CEO of UT Bank, Prince Kofi Amoabeng spoke passionately about the bank’s resolute commitment to serve the SME sector in spite of unpredictable interest rates and a general economic instability.
He explained:“UT Bank has remained particularly focused on its objective to support the SME sector. This is the reason for our being and our area of expertise. The Bank remains focused on this goal and are putting in systems to enable us to withstand any economic shocks”.
He added that “the rising interest rates on Treasury Bills negatively impacted our cost of funds and eroded the benefits that should have been gleaned from the improvement in the CASA ratio from 31% to 38%. The year 2014 was also a year of consolidation for the bank’s organisational change strategy.
We were able to pull all the pieces of the puzzle together to create the organisational structure we need for the next phase of our business growth and this in itself came with its own challenges and business disruptions, which also affected our revenue growth”. He assured that “UT Bank remains committed to overcoming these challenges so we can go back to the days of posting high returns for our shareholders”.
On the way forward, he commented that “management has adopted a three pronged approach to recovery, focusing on asset quality, efficiency, and human capital. We have set up a recoveries department with the mandate to recover our non-performing loan portfolio, while we review and improve our credit policies to ensure that the loan assets that we create, going forward, are of the best quality.
Our strategy to improve efficiency is built on improving revenue through income diversification and reducing our cost of funds.
In this regard, we will continue to grow our non-funded income by cementing the gains achieved in expanding our trade finance portfolio, and increasing income from transactional banking obtained through the use of our e-banking platforms and other innovations.
Our fonBank application, which allows customers to transact business on their smart phones, including purchasing mobile phone credits, is gaining ground in the market. We are pursuing partners for our agency banking units and are excited about the number and type of institutions who have expressed interest. This, in addition to our deposit targeting approach, will significantly improve our reach and is essential to our strategy to trap low cost deposits”.
He added, “Our plans will bloom with the right people driving them. Our human capital strategy therefore focuses on hiring the best minds, developing the capacities of existing staff, and a continual performance assessment using performance management tools such as balance score cards”.
Other plans, he said, include upgrading systems with new functionality, improving MIS, and strengthening internal controls at branches.
He admitted that the current situation would not be turned around overnight, but assured that management would consistently pursue growth and recovery.
African Eye News.com
